Our ongoing analysis of Nodal signaling involves the use of conditional mutagenesis: we have generated a conditional "floxed" allele, which is being used in conjunction with transgenic lines expressing Cre recombinase in various lineages of the early embryo. Additional work on Nodal in our lab is addressing the epigenetic regulation of its expression. Histone modifications have been proposed to function as an epigenetic code independent from their role in ongoing chromatin processes, with trimethylated lysine 4 on histone H3 (H3K4me3) mainly found in active promoter regions and trimethylated lysine 27 (H3K27me3) marking genes for repression by Polycomb proteins. The presence of both these modifications in promoters of developmentally important genes in embryonic stem (ES) cells recently has been suggested to function as an epigenetic signal marking these genes for transcriptional activation later in development. We have found evidence connecting the Nodal-Smad2/3 pathway with Polycomb de-repression. We have found that Nodal and Brachyury, a target of Wnt/beta-catenin signaling in mesoderm formation but which we have now identified as a direct target also of the Nodal pathway, are both regulated by Polycomb repression. Both genes are bound by Polycomb proteins and show H3K27me3 repressive histone marks in the absence of Nodal signaling, or in the absence of Nodal and Wnt signals in the case of Brachyury. We further found that the Nodal-Smad2/3 signaling pathway directly engages the H3K27me3 demethylase Jmjd3 to counteract Polycomb repression at target loci. Physical interaction between Smads2/3 with Jmjd3, and recruitment of Jmjd3 to target genes is dependent on active signaling. In the absence of Polycomb function, however, target loci are expressed independent of Nodal signaling. These results identify Polycomb de-repression as a novel function of the Nodal-Smad2/3 pathway, and suggest this may be a primary role in stem cells and perhaps the early embryo.